Oil & Gas Prices - Feb 14

[dan_s]

Opening Prices:
> WTI is down $1.19 to $78.95/bbl, and Brent is down $0.98 to $85.63/bbl.
> Natural gas is up 13.8c to $2.543/MMBtu.

AEGIS Notes
Oil

Oil reverses yesterday’s gains amid additional SPR releases and demand concerns
March ’23 WTI lost nearly $1.20 this morning to trade around $79/Bbl
Biden administration yesterday announced plans to release more oil from SPR

Inflation data on Tuesday showed that the US CPI was 6.4% in January, a slight deceleration from December but still more than the 6.2% economists expected (WSJ)
Market remains concerned that the new inflation data could push the Fed to turn more hawkish with its interest rate policies

Biden administration plans to sell an additional 26 MMBbl of crude from the Strategic Petroleum Reserve to fulfill a 2015 budget mandate (BBG)
The sale is scheduled between April and June, and following this latest release, the reserve will drop to about 345 MMBbl, the lowest level since 1983
Biden officials decided to withdraw 180 MMBbl from the strategic reserve in an effort to ease supply issues after Russia invaded Ukraine last year
About 140 MMBbl of the other congressionally mandated releases scheduled for the fiscal years 2024-2027 were canceled after lawmakers passed a provision in a budget bill in December
Previously, Biden officials have spoken with energy companies about purchasing oil to refill the SPR when oil prices approach levels around $70/Bbl
MY TAKE:
> This is a national security issue. The SPR was created to insulate the U.S. from oil supply issues should war break out in the Middle East.
> This give OPEC+ and Russia even more control of the global oil market.
> 26 million barrels sounds like a lot, but it will not have a long-term impact on a global oil market that consumes over 100 million barrels per day of oil-based products.
> Total U.S. petroleum inventories (including the SPR) are below the "safe level" to support the U.S. economy and they will go a lot lower after Q1.

UAE is worried about an oil supply shortage in 2024 (BBG)
Oil supplies will be a bigger problem than demand for international markets in 2024 as some countries struggle with production and under-investment, according to the UAE’s Energy Minister Mazrouei
Mazrouei added that the market is “balanced” for this year and has enough “volumes” to meet demand growth
His comments follow OPEC+ Secretary General Al-Ghais’ warning that the market is suffering from a "chronic" lack of investment < This is why oil prices will be going a lot higher after Q1 this year.

Natural Gas

Natural gas prices are up 6% this morning, trading around $2.55
The Summer ’23 strip is up 8c to $3.01, and the Winter ‘23/’24 strip is higher by 5c to $3.90
Weather forecasts have shifted cooler, with the most notable changes in the Midwest and Northeast regions
The Midwest forecast cooled by 12 °F and the Northeast’s forecast cooled by 6.8 °F, both in the 6-10 day period

Coal retirements to be accelerated by Inflation Reduction Act (S&P)
US coal generation capacity has been trending lower for more than a decade, but new legislation could accelerate the trend of retirements
Tax credits for wind and solar have reduced the cost of constructing renewables, making them more economical than many coal plants
58.7 GW of coal capacity is set to be retired by 2030, with 41.4% of those retirements due to the Inflation Reduction Act, according to S&P Global
It is estimated that only 10.4% of US electricity will be generated from coal by the year 2030

Natural gas production to reach a new record high in March (Reuters)
According to the EIA, total gas output is expected to grow by 0.4 Bcf/d in March to a record of 96.6 Bcf/d
Production from the Appalachian Basin is expected to increase to 35.1 Bcf/d, which would be the highest level since September 2022
The EIA said that while production is expected to grow in Appalachia, producers are getting less gas out of each well, with new gas well production per rig expected to fall to 24.6 MMcf/d < Could the Marcellus Shale be approaching peak production???

[dan_s]

We need to focus on U.S. total petroleum inventories, including the SPR.  Our total inventories are now at the minimum required to support our economy.  After Q1 they will fall even further. Demand for oil-based products is seasonal and Q2 is when demand for transportation fuels spikes higher.

Total OECD Petroleum Inventories are now under 28 Days of Consumption.  Raymond James' forecast is that they will decline after Q1 and approach 25 DOC by Q4, a level never seen before.  We are just a few months away from triple digit oil prices, so hang tough.

[dan_s]

Closing Prices:
> Prompt-Month WTI (Mar 23) was down $-1.08 on the day, to settle at $79.06
> Prompt-Month Henry Hub (Mar 23) was up $0.162 on the day, to settle at $2.567